1. BestChoice SRM: A Simple and Practical Supplier Relationship Management System for e-procurement June 12, 2007 Dongjoo Lee, Seungseok Kang, San-keun Lee, Young-gon Kim, Sang-goo Lee Seoul National University, Korea

2. Copyright  2007 by CEBT Contents  e-Procurement and SRM  SRM Process  Implementation Template-based Segmentation System Architecture Application  Conclusion DEECS 2007 - 2Center for E-Business Technology

3. Copyright  2007 by CEBT e-Procurement and SRM  Procurement Huge portion of the production cost  E-procurement Advance of the internet, Various software Various data are accumulated Quantitative evaluation of supplier became easier  Supplier selection and relationship management Selecting the best supplier for a product and service is a traditional research area – MAUT, AHP, … Managing strategic relation between a company and suppliers Segmentation DEECS 2007 - 3Center for E-Business Technology

4. Copyright  2007 by CEBT SRM System  There are already various SRM systems By SAS, SAP, and i2 … Integration problem with existing processes or systems Brings the burden to change existing processes or systems  How to solve integration problem? Do not change existing processes and systems!! Just add or change necessary parts!!  Core functionalities of SRM!! Evaluation of the target Analysis of the evaluation Segmentation of the target DEECS 2007 - 4Center for E-Business Technology

5. Copyright  2007 by CEBT General Procurement Process  Generally similar products are grouped into a sourcing group (SG)  Suppliers are mapped to different SGs according to the item they supply  Sourcing managers handle the total sourcing process and manage suppliers DEECS 2007 - 5Center for E-Business Technology Need for Item Catalog Search & Registration Search Candidate Suppliers Send RFQ Receive Quotes Evaluate Suppliers Contract

6. Copyright  2007 by CEBT Fundamental Principle in SRM  Suppliers must be managed differently according to their strategic position determined by what they supply how well they do it  Example of auto industry DEECS 2007 - 6Center for E-Business Technology Strategic – a high value input that may be useful in differentiating the buying firms Non-strategic – necessary but not strategic transmissionengineair conditioner belttirebattery

7. Copyright  2007 by CEBT The real problems  What are the really strategic products and suppliers? Segmentation – Strategic positioning of suppliers  Why are the products and suppliers strategic? Evaluation and visual analyses – BestChoice DEECS 2007 - 7Center for E-Business Technology CompetitiveStrategic NormalBottleneck High Low High Low

8. Copyright  2007 by CEBT SRM Process  Strategic planning Planning, establishing policies on how to segment, evaluate, and manage suppliers  Segmentation Determine which items and suppliers are strategic – Evaluate and analysis its results May change as a company’s strategy changes  Managing suppliers Assign management policies Monitor supplier performance DEECS 2007 - 8Center for E-Business Technology

9. Copyright  2007 by CEBT SRM Process with BestChoice SRM Establish Supplier Evaluation Policy for each Sourcing Group Establish Supplier Management Strategy for each Sourcing Group Segment Sourcing Groups Segment Suppliers Assign & Apply Management Strategy to Each Segment Monitor Suppliers DEECS 2007 - 9Center for E-Business Technology Strategic Planning Strategic Planning Segmentation Managing Suppliers Managing Suppliers

10. Copyright  2007 by CEBT Evaluation Policy  From BestChoice  Measure strategic importance of SGs  Calculate utility of suppliers  Convert abstract value to numerical value using MAUT, AHP  Data preparation DW, Survey DEECS 2007 - 10Center for E-Business Technology

11. Copyright  2007 by CEBT DEECS 2007 - 11Center for E-Business Technology Calculation  Multi Attribute Utility Theory (MAUT) The value of alternatives consist of measures over the criteria contributing to worth; all converted to a common scale of utility

12. Copyright  2007 by CEBT SG Segmentation  Depends on a company’s strategy  Performed in two-dimensional space  Allow various segmentation strategies by changing the evaluation policy  Example Risk of Supply (RoS) : Easiness of Item Replacement (EoIR) + Easiness of Supplier Replacement (EoSR) Importance of SG (IoSG) : Total purchasing amount DEECS 2007 - 12Center for E-Business Technology CompetitiveStrategic NormalBottleneck High Low Risk of Supply High Low Importance of SG

13. Copyright  2007 by CEBT Supplier Segmentation  Suppliers are segmented by evaluation score indicating how well they supply depending on the SG of item they supply DEECS 2007 - 13Center for E-Business Technology HighLow RoS + IoSG High Low SG 1 SG 2 SG n...... ABCD Evaluation Score of Supplier Line ALine B Line C

14. Copyright  2007 by CEBT Template-based Segmentation  Segmentation Template (ST) Description of how to segment SGs and suppliers Flexible segmentation DEECS 2007 - 14Center for E-Business Technology

15. Copyright  2007 by CEBT Segmentation Process DEECS 2007 - 15Center for E-Business Technology Step 1. Register Segmentation Project Step 2. Choose Segmentation Template Step 3. Select Segmentation Targets Step 4. Integrate Raw Data From DW & Transactional DB Step 5. Segment Sourcing Groups Step 6. Segment Suppliers Step 7. Apply Segmentation Results to SGs & Suppliers Preparation Registration Execution Application

16. Copyright  2007 by CEBT System Architecture DEECS 2007 - 16Center for E-Business Technology DW SRM DB Master DB OLAP System e-Procurement System SRM System Sourcing Group Manager Supplier Manager Monitoring Tool Segmentation Project Manager Segmentation Template Manager Evaluation Manager Master Data Synchronizer Transporter DW Interface Master Data Interface RMI

17. Copyright  2007 by CEBT Application  Implemented as a web application following the J2EE architecture.  Installed at eNtoB, one of the major commercial e-Procurement agencies in Korea. DEECS 2007 - 17Center for E-Business Technology

18. Copyright  2007 by CEBT Application - SG Segmentation DEECS 2007 - 18Center for E-Business Technology

19. Copyright  2007 by CEBT Application - Supplier segmentation DEECS 2007 - 19Center for E-Business Technology

20. Copyright  2007 by CEBT Application - Analysis of evaluation DEECS 2007 - 20Center for E-Business Technology

21. Copyright  2007 by CEBT Conclusion & Future work  Conclusion Suggest segmentation strategy and process which is independent from the company’s systems or processes Suggest dynamic segmentation based on the segmentation template Implemented and installed the system at commercial e-procurement agency BestChoice SRM is a practical approach to solving the integration problem with existing systems of a company  Future work Validation & verification – A survey of sourcing managers indicated that the system is useful in evaluating and segmenting SGs and suppliers – Quantitative results for BestChoice SRM performance DEECS 2007 - 21Center for E-Business Technology